A123 sale to China: threat to US security?

The sale of advanced battery maker A123 to China's Wanxiang Group could recoup US taxpayer funds. But critics warn the threats to US security outweigh any benefits from the pending sale of A123.

Paul Sancya/AP/File

In this 2009 file photo, an A123 Systems Inc. high power lithium ion cell for electric vehicles is displayed in Livonia, Mich. When the bankrupt battery maker announced Sunday that it would sell its assets to China's Wanxiang Group, critics have warned about US security threats from the pending sale.

The auction sale to a Chinese company of bankrupt advanced battery maker A123 Systems, which received millions in US taxpayer support, is drawing heavy fire for both national and economic security concerns.

On Sunday, the US-based auto parts subsidiary of China's Wanxiang Group, outbid US-based Johnson Controls, Japan's NEC, and Germany's Siemens by paying $256.6 million for the assets of the company. A Delaware bankruptcy court was weighing the deal Tuesday.

Under normal circumstances, sale of assets of a bankrupt auto-parts supplier would draw little attention. Not so for Waltham, Mass.-based A123, which makes lithium-ion batteries for next-generation plug-in hybrid and all-electric battery-powered cars. The reason: its $249 million clean-energy grant from the Obama administration.

A123 had used about $133 million of that grant prior to filing for Chapter 11 bankruptcy in October. No further draw against the original grants will be permitted, US officials confirmed Tuesday.

"We plan to build on the engineering and manufacturing capabilities that A123 has established in the U.S. and we are committed to making the long-term investments necessary for A123 to be successful," Pin Ni, president of Wanxiang America, said in a statement.

But even if the sale helps repay US taxpayers, opponents of the deal worry that US taxpayer-funded advanced battery technology will end up in China's hands.

"Given the thin line between Wanxiang and the Chinese government, I am concerned about the government of China having access to sensitive technologies being used by our military forces," said Rep. Bill Huizenga (R) of Michigan.

To help speed approval of the deal – and get it cleared by Mr. Geithner's committee – A123's government division with government and military contracts was carved off and sold to Navitas Systems, an Illinois energy company, for $2.2 million.

But others said that the sale to Navitas hardly mattered since the advanced battery technology being developed for the military could easily be reconstructed from other A123 technology.

"We live in an era of undeniable globalization; however, granting a Chinese company access to even the commercial segment of A123’s business will ultimately give it access to Department of Defense financed military technology, due to the similarities in intellectual property across all business lines," wrote the Strategic Materials Advisory Council, a watchdog group of former military officials, in a statement.

A123’s technology, they argued, may serve as the backbone not only for future power grid technologies but also for key future military applications.

"Our nation must protect all of A123’s intellectual property, as the sale of any one segment of the company will allow the reverse-engineering of the other parts as well, due to the similarity of the company’s product lines," wrote eight members of the council in a Nov. 27 letter to Mr. Geithner. "We believe it is in the best interests of the United States to block this transfer, as CFIUS has successfully done in similar situations."

Still others said Wanxiang's move fits a larger pattern in which China is using its financial clout at a time of US economic weakness to snap up companies with critical technologies that it covets as part of a long-term economic growth strategy. Chinese firms that acquire such technology often reap recognition and other government benefits.

"I don't know if Wanxiang benefits from Chinese government support, but certainly the government is supporting the acquisition and development of automotive battery technology as part of its push into new renewable energy and global automotive markets," says Andrew Szamosszegi, an expert on US-Chinese trade at Capital Trade Inc., a Washington-based international economic consulting firm.

Along those lines, China's government publishes five-year plans to encourage companies to pursue certain technologies and goals. Currently this includes acquisition of advanced automotive battery technology, Dr. Szamosszegi says.

"Let's say we're electric-vehicle makers developing battery technology and the Chinese government says we want technology in this area in order to leapfrog our competition," he says. "So, naturally, there are economic security concerns that arise from this deal. The Chinese five-year plan is effectively putting a target on areas that the US government is trying to develop."

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Wanxiang has been in avid pursuit of A123 since at least this past spring, when the Chinese company offered loans to help keep the faltering battery manufacturer solvent. That pursuit is revealing, says Alan Tonelson, an economist with the US Business and Industry Council, which represents small and medium-sized manufacturers

"Clearly in this case a sizable US taxpayer investment was in danger of going down the drain," he says. "But that's less of a concern than handing over this taxpayer funded technology to the Chinese government, a potential adversary. If guaranteeing the efficient operation of the nation's power grid is not a top national security priority in a post 9/11 world, I don't know what is."

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